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Thomas
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Category: UK Law
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I have lent a director of a business some money. He verbally

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I have lent a director of a business some money. He verbally promised in front of witnesses that what ever happened even if the company went bust I would not lose any money. The company has gone into liquidation, is the debt enforceable ?
Hi,

Did you lend the money to the director in his personal capacity, or to the limited company with the director simply having arranged it on behalf of the company?

Tom
Customer: replied 3 years ago.

Hi Thomas


 


I paid some of his business debts.


He asked me for help with the intention of me becoming a director... in front of the company accountant. He said 'Dave I guarantee if the company goes bust you will not lose any money I will pay you back personally'


 


Regards


 


Dave

Hi Dave,

Do you have a written agreement in respect of the loan?

If so, who is listed as the borrower?

Tom
Customer: replied 3 years ago.

Hi Thomas


 


No unfortunately I don't have a written agreement but he has admitted lately that he made the promise


 


Dave

Right, thanks Dave.

The importannt distinction here is whether you lent him money in his personal capacity, or whther you lender to the limited company which he accepted as director.

The statement that you have confirmed he said seems to indicate that it was lent to the limited company (albeit with a possible guarantee from him).

Is this what you understood the arrangement to be?

Tom
Customer: replied 3 years ago.

Well, I assumed I was lending him the money personally.. to assist him with cash flow in his business. He said the debts were not that bad and there was a very busy order book. when they had dates for the work there would be a position for me in the business. But he personally owed me the money.


 


Dave

Drafting your answer now.

5 mins.

Tom
Hi

Thanks for your patience.

Whilst a legal loan agreement can be verbal the problem is that it leads to uncertainty as to the terms. This is what we have here.

The difficulty is that the director can either contract with you personally, or he can contract the company by acting on the company’s behalf. It’s not clear which it is, frankly.

If he has contracted with you personally then you would be able to enforce the debt by suing for money judgement against him at county court.

If he has contract the company by acting as a director then the borrower would be the company. You would only be able to sue him personally if he had guaranteed the loan personally.

The circumstances (with director and company accountant) seem to suggest that it was the company that you were lending the money too. The statement of the director appears as if the director also believed that you were lending the money to the company.

However, the statement of the director seems to suggest that he would incur personal liability. This might be enforceable as a guarantee if the statement was made to you before you transferred the money and contracted with him, if it was made so as to induce you to transfer the money.

It’s very difficult to discern, frankly, and there’s a lesson to learn here about getting things in writing (however brief). However, if I were pushed I would suggest that you probably lent the money to the company but (if the guarantee statement was made before you did) with a guarantee from the director.

If the company is in liquidation then you don’t stand much chance of getting the money back from the company and so you would probably be better off attempting to claim the money from the director personally by claiming he have you a guarantee.

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Kind regards,


Tom
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